CBO: Middle Class Won't Be Exempt From Debt-Problem Solution

The middle class will ultimately face either higher taxes or cuts in government services if lawmakers seriously want to slash the national debt, the head of the Congressional Budget Office says.

"Putting the debt on a sustainable path will ultimately require increases in taxes or cuts in government benefits or services for people who consider themselves to be in the middle class," Doug Elmendorf, director of the Congressional Budget Office (CBO), said in a recent speech at Harvard University.

The CBO director, CNNMoney notes, had previously conceded that Congress could largely avoid increasing middle-class tax cuts by cutting benefits to the poor and raising taxes on the wealthy — for a time. The problem is that a large swath of income earners consider themselves middle class.

As the aging population boosts the ranks of seniors, spending for Medicare and Social Security is projected to consume 9 percent of gross domestic product (GDP) by 2023, the CBO predicts. Government spending for interest payments will increase to 3.3 percent of GDP. That's a 50 percent increase over its 40-year average.

Elmendorf worries that rising government spending for entitlements will take away funds for private investment.

Cutting spending while the economy is still recovering can damage economic growth. On the other hand, he says, waiting until the economy is robust will allow debt to grow larger.

"The longer that we wait as a country to make the sort of choices that we have to make, the harder it will be," Elmendorf said previously, according to CNNMoney.

Others argue that budget cuts and tax increases would squash economic recovery and that ballooning costs for entitlements are long-term projections that don't have to be addressed immediately.

The deficit, at least on the short term, is shrinking. The CBO forecasts that the deficit will fall below 4 percent of GDP next year and below 2.5 percent in 2015, NPR reports.

The sequester stalemate in Washington is largely responsible for the falling deficit.

"There are two really big spending stories that are changing the fiscal outlook in Washington," Greg Valliere of Potomac Research tells NPR. "The first is that there's no new spending. Anything the president proposes will get rejected by the House. Secondly, through sequester and other cuts, domestic discretionary spending is actually falling."

"Deficit reduction means slowing the growth of spending and raising taxes. And nobody likes that, John Makin of the American Enterprise Institute says. "We're doing some short-run pain for long-run gain, but we're not doing too much of it. And that's why I think we've done enough austerity for now."